An increase in the inventory turnover ratio is normally considered to be favourable but could be unfavourable if it means:
A) liquidity is greater.
B) storage costs of inventory are lower.
C) inventory is less likely to become obsolete.
D) the firm is not carrying enough inventory to meet its customer's needs.

Question

Quizplus · Accepted Answer

If the inventory turnover ratio increases because the firm is not carrying enough inventory to meet its customer's needs, it could lead to lost sales and dissatisfied customers. In this case, a higher inventory turnover ratio would be unfavourable.

An Increase in the Inventory Turnover Ratio Is Normally Considered